The 2016 UK referendum to leave the European Union continues to have broad, far-reaching and unintended consequences. One of the key places where Brexit is felt is in the London property market. Let’s take a look at the latest news and numbers.
Rents Decline for the Fourth Straight Month
For the fourth month in a row, the cost to rent a home has decreased in London. This is the first time there has been any decrease in eight years as Brexit continues to rattle the market in the capital. According to Home Let, the rent for lettings in July in London averaged £1,564 per month, which is 0.6 per cent less than last year.
In the UK as a whole, rents rose 1.1 per cent with Scotland and Northern Ireland leading the rise. As Brexit’s uncertainties lead to the introduction of taxes and affordability problems, London’s housing market continues to weaken. A stamp-duty tax introduced in April 2016 led landlords to release equity from property portfolios and rush to buy additional homes before the deadline. The boost in supply led to more competition for new tenants. The London’s pace of rent decline has slowed, but the market looks completely different than the 6.6 per cent increases experienced in July of 2016.
More Shake-Ups Are Sure to Come
Another concern is that financial service staff in London may be relocating to continental Europe if the UK does not secure financial services passporting rights. In London, there are about 700,000 financial services workers. And, PwC estimates as many as 100,000 of them will need to leave the UK by 2020 if the passporting rights are not secured. Prime Minister Theresa May has made it clear that she wants to leave the EU Single Market, so the UK is likely to lose passporting.
If you assume one financial service worker per household, you could expect up to 100,000 houses to be freed up in London. With around 3.5 million dwellings in the capital, 1.1 per cent to 2.9 per cent of London’s housing stock could open up. In recent years, the London market has experienced rapid house price growth thanks to a short supply of houses. Though it is too soon to say what impact this will have on the property market, it is clear that there are a lot of question marks and uncertainty. We will be sure to keep you updated as Brexit introduces new challenges.